Cost Accounting Standards: An
Overview effective on April 17, 1992.
By Chuck Grosso, CIA, CGAP, Sandia National
Laboratories
What do the 18th Century German poet
Johann Wolfgang Von Goethe, Senator
William Proxmire and Vice Admiral H.G.
Rickover have in common? All three
men were interested in accounting.
Goethe once said, “Double-entry
bookkeeping is one of the most beautiful
discoveries of the human spirit.”
Senator Proxmire and Admiral Rickover
jointly developed the concept of Cost
Accounting Standards (CAS).
In some work environments, the
acronym CAS strikes fear into the hearts
and minds of managers and
accountants everywhere---well, almost.
What is CAS? They sound simple
enough. Besides, auditors are used to
working with all kinds of auditing,
financial and accounting standards in
their work.
For those of you who absolutely enjoyed
your cost accounting class in school,
and for the rest of you too, CAS are a
detailed set of nineteen accounting
standards promulgated by the Cost
Account Standards Board. Recently,
four new CAS standards have been
written and apply to contracts with
educational institutions. Recent
legislation has rendered CAS applicable
to Government contracts with all
agencies of the U.S. Government.
Historically, the concept of CAS
originated out of criticism of defense
contractor accounting practices and, as
mentioned above, was developed by
Vice Admiral H.G. Rickover and Senator
William Proxmire. The Cost Accounting
Standards Board was originally
authorized by statute in August 1970
while the scope of CAS was limited to
negotiated contracts with the defense
agencies of the U.S. Government. CAS
was recodified in Title 48 of the Code of
Federal Regulations, Chapter 99,
That is enough history for now. What
about CAS? The standards, of course,
are based on common sense principles
of cost accounting. There are three
major pillars of CAS that include,
consistency in charging costs between
direct and indirect projects, incurring
cost based on causal/beneficial
relationship and full cost-allocation or
full-cost recovery.
Contractors must be consistent in
charging both direct and indirect costs to
Government contracts. If certain costs
are disclosed as direct costs, they must
be charged directly to work projects for
the same purpose, in similar
circumstances. If certain costs are
disclosed as indirect costs, they must be
charged to cost pools and allocated to
direct work projects over an appropriate
basis for the same purpose, in similar
circumstances.
Incurring costs based on a
causal/beneficial relationship simply
means that if you work on a particular
work project, you charge your time to
that project. If you buy something
benefiting that project, it is charged for
the item.
Full-cost allocation or full-cost recovery
in a Government-owned-company
operated (GOCO) context refers to the
fact that all costs related to a particular
project are charged to that project and
billed to that particular Government
project sponsor. No other sponsor
should be billed for any part of the
project cost.
These three principles are intended to
achieve equity in charging costs to
Government contracts.
As mentioned above, there are nineteen
major standards and four additional
standards for educational institutions.
The nineteen standards include the
following titles:
• CAS 401, Consistency in
estimating, accumulating and
reporting costs.
• CAS 402, Consistency in
allocating costs incurred for the
same purpose.
• CAS 403, Allocation of home
office expenses to segments.
• CAS 404, Capitalization of
tangible assets.
• CAS 405, Accounting for
unallowable costs.
• CAS 406, Cost accounting
period.
• CAS 407, Use of standard costs
for direct material and direct
labor.
• CAS 408, Accounting for costs of
compensated personal absence.
• CAS 409, Depreciation of
tangible capital assets.
• CAS 410, Allocation of business
unit general and administrative
expenses to final cost objectives.
• CAS 411, Accounting for
acquisition costs of materials.
• CAS 412, Cost accounting
standard for composition and
measurement of pension costs.
• CAS 413, Adjustment and
allocation of pension cost.
• CAS 414, Cost of money as an
element of the cost of facilities
capital.
• CAS 415, Accounting for the
cost of deferred compensation.
• CAS 416, Accounting for
insurance costs.
• CAS 417, Cost of money as an
element of the cost of capital
assets under construction.
• CAS 418, Allocation of direct and
indirect costs.
• CAS 420, Accounting for
independent research and
development and bid and
proposal costs.
The four educational-related standards
provide coverage on consistency in
estimating, accumulating and reporting
costs, consistency in allocating costs,
identification of unallowable costs and
consistency in selection and use of a
cost accounting period.
For CAS-covered contactors, there is
also a disclosure requirement.
Contractors must write and maintain a
CAS disclosure statement. The
disclosure statement is a document
describing a contractor’s accounting
system. There are usually two parts,
consisting of preprinted forms containing
boxes to check and blanks to fill in and
continuation sheets that contain
amplification and commentary on the
responses provided in the forms. The
amount of detail provided in the CAS
disclosure statement is, of course, left
up to the contractor. In offering a word
to the wise, however, it should be
recognized that the disclosure statement
must provide sufficient detail to convey
full understanding of a contractor’s
accounting system to the Contracting
Officer and to any interested auditors.
If an organization makes significant
accounting changes during the fiscal
year or at the beginning of a fiscal year,
those changes must be documented in
a modified CAS disclosure statement
that is submitted to the Contracting
Officer of the sponsoring agency.
The Contracting Officer of the
sponsoring agency has responsibility to
rule on adequacy of a contractor’s CAS
disclosure statement.
Besides being an externally-imposed
requirement for Government
contractors, CAS is a major accounting
control that assists management with
charging costs to Government contracts
and equitable treatment of Government
sponsoring agencies where multiple
sponsors engage the services of a
single contractor.

For auditors who audit contractors with

the U.S. Government, knowledge of
CAS becomes increasingly important.

Additional information about CAS may

be obtained at the following Internet
sites:

http://www.whitehouse.gov/omb/procure
ment/casb.html

http://www.arnet.gov/far/97/html/appendi
x.html